Question

Excel Memory Company can sell all units of computer memory X and Y that it can produce, but it has limited production capacity. It can produce two units of X per hour or three units of Y per hour, and it has 4,450 production hours available. Contribution margin is $8 for poct X and $7 for product Y. 1. Calculate contribution margin per production hour. r 2. What is the most profitable sales mix for this Company?

a. Allocate 40% its production capacity to Product X
b. Allocate 24% its production capacity to Product Y
c. Allocate all of its production capacity to Product Y
d. Allocate all of its production capacity to Product X

Answer 1

Answer:

Option C is correct - allocate all of its production capacity to Product Y.

Explanation:

1. Contribution margin per production hour

         Product X Product Y

Contribution margin per unit    $8   $7

Units produced per hour     2   3

Contribution margin per production hour    $16($8*2)   $21($7*3)    

2. The most profitable sales mix for this company is to allocate all of its production capacity to Product Y.

Option C is correct.